Cambridge A Level Economics 9708 — 2018 May/June Paper 1 · Variant 1

Question 1

1 What would be an opportunity cost of growth in an economy? A the faster growth of services than of manufacturing B the need for an increased level of imported raw materials C the need for greater government intervention D the reduction of consumption if growth requires investment

Accepted Answer

D

Question 2

2 A ««1«« economic statement is an objective statement that ««2«« be tested using factual evidence, whereas a ««3«« economic statement is a subjective statement that ««4«« be tested using factual evidence. Which words complete gaps 1, 2, 3 and 4? 1 2 3 4 A normative can positive cannot B normative cannot positive can C positive can normative cannot D positive cannot normative can

Accepted Answer

C

Question 3

3 What would most likely be considered an advantage by producers and a disadvantage by consumers of the operation of a planned economy? A a bureaucratic system of decision-making B a government emphasis on the production of capital goods C a long response time to changing economic events D an absence of financial incentives to work and to produce

Accepted Answer

B

Question 4

4 A country can produce manufactured goods and agricultural products as shown in the diagram. agricultural V products T Q S R O manufactured goods Given this information, which statement is definitely correct? A If the country produces at Q it has unused or inefficiently used resources. B The country should produce at T instead of at Q. C The country would be better off producing at R than S. D The monetary costs are the same to produce at V as they are to produce at R.

Accepted Answer

A

Question 5

5 The diagram shows a demand curve for a good. price D O quantity Which statement describes the nature of this demand curve? A A greater or smaller quantity is demanded as price changes. B A lower price is the result of a fall in demand. C As demand increases so does price. D Quantity changes in proportion to the change in price.

Accepted Answer

A

Question 6

6 The diagram shows the relationship between the price and the total expenditure on a good. price O total expenditure Which statement is correct? A The income elasticity of demand for the commodity is unity. B The income elasticity of demand for the commodity is zero. C The price elasticity of demand for the commodity is unity. D The price elasticity of demand for the commodity is zero.

Accepted Answer

C

Question 7

7 Over the last ten years the price elasticity of demand for tea in many countries has risen. What is the most likely cause of this change in price elasticity? A a decrease in the incomes of consumers B a decrease in the number of complements to tea C an increase in the amount of tea supplied D an increase in the number of substitutes for tea

Accepted Answer

D

Question 8

8 What would be the price elasticity of supply of cell (mobile) phones if their price rose from US$100 to US$110 and the quantity supplied rose from 200 to 250? A 0.2 B 0.4 C 2.5 D 5.0

Accepted Answer

C

Question 9

9 A product has a high price elasticity of supply. What might explain this? A The product has a high opportunity cost. B The product has a non-perishable nature. C The product is classed as an inferior good. D The product is considered to be a luxury.

Accepted Answer

B

Question 10

10 The diagram shows the demand curve, DD1, and the supply curve, SS1, for eye operations. S D price P O S1 D1 number of operations The operations are provided free to the consumer. Which statement is correct? A Consumer surplus from the operations is ODD1. B The equilibrium price is indeterminate, because the supply curve is vertical. C The equilibrium price is P. D The equilibrium price is zero.

Accepted Answer

C

Question 11

11 The demand for houses in London has caused house prices to rise considerably in the last five years. Many people cannot now afford to buy a house. What can be concluded from this? A On a demand and supply diagram for houses there has been a movement up the demand curve. B On a demand and supply diagram for houses there has been a movement up the supply curve. C The price elasticity of demand for houses is greater than one. D The price elasticity of supply of houses is zero.

Accepted Answer

B

Question 12

12 A specific tax is placed upon each bottle of perfume sold. In the diagram, S is the supply curve before tax and St is the supply curve after tax. St price S W R U Q X P T D O Y Z quantity Which area represents the revenue received by the government from the tax? A ORWY B PQUT C PRWT D QRWU

Accepted Answer

C

Question 13

13 The diagram shows the demand curve and supply curve for a product. S X price Y W D O Z quantity Which area represents producer surplus? A OWYZ minus OWY B OWYZ minus OYZ C OXYZ minus OYZ D OXYZ minus WXY

Accepted Answer

B

Question 14

14 Which statement about maximum and minimum prices is correct? A With an effective maximum price for a product, a shortage will develop. B With an effective maximum price for a product, the market price will rise. C With an effective minimum price for a product, rationing will be necessary. D With an effective minimum price for a product, the market price will fall.

Accepted Answer

A

Question 15

15 The diagram shows the effect on the market for a product of the introduction of a government subsidy. 25 price ($) 20 S1 15 S2 10 D 5 0 0 10 20 30 40 50 60 quantity What is the result of the payment of the subsidy? A Consumer surplus increases. B The price to the consumer halves. C The subsidy provides over half of producer income. D Total consumer expenditure on the product increases.

Accepted Answer

A

Question 16

16 Why are the pensions paid to retired citizens an example of a transfer payment? A Retired citizens pay no tax on their pensions. B Retired citizens produce no output for their pensions. C Retired citizens save some of their pensions. D Retired citizens spend all of their pensions.

Accepted Answer

B

Question 17

17 What is definitely a feature of a nationalised industry? A Consumers are not charged a price for its product. B No profit is made from supplying its product. C The government owns the industry’s capital. D There is no competition in the market for its product.

Accepted Answer

C

Question 18

18 Which government action would be identified as the direct provision of goods and services? A increasing road maintenance because of poor weather conditions B making payments to low-income families with elderly dependants C subsidising firms in order to encourage them to increase their output D taxing firms because they have been emitting damaging fumes

Accepted Answer

A

Question 19

19 In its 2016 budget statement, the South African government proposed stimulating business activity by the removal of regulations. It also announced that government expenditure was expected to grow by 7.1%. The diagram shows aggregate demand (AD) and aggregate supply (AS) for the South African economy. X is the original equilibrium point. Which new equilibrium would result from the changes? price AS level B A X C D AD O real GDP

Accepted Answer

C

Question 20

20 What would be certain to cause a fall in a country’s cost of living? A a fall in real incomes B a fall in the inflation rate C a negative inflation rate D a reduction in direct tax rates

Accepted Answer

C

Question 21

21 The table gives figures for household spending in the UK economy between 2008 and 2010. nominal household real household consumption spending consumption spending (£ million) (£ million) 2008 878 024 878 024 2009 858 242 846 961 2010 900 204 855 302 What can be concluded from the figures? A All households bought more goods and services in 2010 than in 2008. B Households saved more in 2008 than in 2010. C Living standards were lower in 2009 than 2010. D The rate of inflation was higher in 2010 than in 2009.

Accepted Answer

D

Question 22

22 The table shows trade in goods and services for a selection of countries in 2005 and 2014. trade in goods and services (US$ millions) 2005 2014 exports imports exports imports Argentina 46 892 34 797 82 026 79 194 Brazil 133 055 96 611 264 063 318 799 Ecuador 11 480 11 851 28 935 30 215 Mexico 230 369 245 100 418 952 433 977 What can be concluded about the balances of trade in goods and services from the table? A Argentina had a larger surplus in 2014 than in 2005. B Brazil had a surplus in 2005 and a deficit in 2014. C Ecuador had a deficit in 2005 and a surplus in 2014. D Mexico had a larger deficit in 2005 than in 2014.

Accepted Answer

B

Question 23

23 A newspaper headline stated that the Australian car industry has been affected by the strength of the Australian dollar. What would not be an effect caused by a strong rising Australian dollar? A Reduced foreign demand for Australian cars caused increased unemployment. B The price of exports of Australian cars became more expensive. C The price of foreign competitive cars became less expensive. D The price of imports of car parts became more expensive.

Accepted Answer

D

Question 24

24 The terms of trade for a country have improved. Which combination of price behaviour would have caused this? average price average price of exports of imports A decrease 4% decrease 6% B decrease 4% unchanged C increase 4% increase 6% D unchanged increase 2%

Accepted Answer

A

Question 25

25 The graphs show the production possibilities for commodities X and Y in two countries M and N. country M country N Y Y 50 140 X X 0 100 0 560 What will be the effect of an agreement between M and N to exchange the commodities at a rate of 1Y for 3X? A Both countries will gain, because their consumption possibilities will increase. B Consumers in country M will lose, because a unit of Y will now cost 3X instead of 2X. C Neither country will gain, because they both have a comparative advantage in the production of the same commodity, X. D Only country N will gain, because N can produce more of both commodities than M.

Accepted Answer

A

Question 26

26 In the diagram, D is a country’s demand curve for an imported good. The country’s government imposes an import tariff equal to PWPC on the good. price PC x y PW z D O quantity Which areas measure the resulting loss in consumer surplus and the resulting gain in government revenue? loss in gain in consumer government surplus revenue A x + y x B x + y z C y x D y z

Accepted Answer

A

Question 27

27 The demand for a country’s exports is price-elastic. What will be the effect of introducing export subsidies on its balance of trade and on its terms of trade? balance of trade terms of trade A improve improve B improve worsen C worsen improve D worsen worsen

Accepted Answer

B

Question 28

28 A government decides to borrow from the general public in order to finance its extra spending on
apprenticeship training schemes.

Which types of macroeconomic policy are being used?

fiscal monetary supply side
A J x J key
B v x x / = used
Cc x v v X = not used
D x Jv x

Accepted Answer

A

Question 29

29 Which policy is not likely to help reduce a balance of payments deficit? A an increase in expenditure promoting locally produced goods B an increase in the quota on cheap imports C an increase in the restrictions on foreign exchange D an increase in the subsidies to exporting industries

Accepted Answer

B

Question 30

30 A country has a target rate of inflation of 2.5% and has recently experienced the actual rate rising to 6%, with unemployment falling to very low levels. Which policy option is most likely to be implemented? A an increase in government expenditure on training B an increase in indirect taxes on demerit goods C an increase in import tariffs D an increase in interest rates

Accepted Answer

D

Cambridge A Level Economics 9708 — 2018 May/June Paper 1 · Variant 1

Question paper12 pages

Mark scheme3 pages

Questions as text

Q1 · What would be an opportunity cost of growth in an economy?

Q2 · A ««1«« economic statement is an objective statement that ««2«« be tested using factual…

Q3 · What would most likely be considered an advantage by producers and a disadvantage by…

Q4 · A country can produce manufactured goods and agricultural products as shown in the diagram

Q5 · The diagram shows a demand curve for a good

Q6 · The diagram shows the relationship between the price and the total expenditure on a good

Q7 · Over the last ten years the price elasticity of demand for tea in many countries has risen

Q8 · What would be the price elasticity of supply of cell (mobile) phones if their price rose…

Q9 · A product has a high price elasticity of supply

Q10 · The diagram shows the demand curve, DD1, and the supply curve, SS1, for eye operations

Q11 · The demand for houses in London has caused house prices to rise considerably in the last…

Q12 · A specific tax is placed upon each bottle of perfume sold

Q13 · The diagram shows the demand curve and supply curve for a product

Q14 · Which statement about maximum and minimum prices is correct?

Q15 · The diagram shows the effect on the market for a product of the introduction of a…

Q16 · Why are the pensions paid to retired citizens an example of a transfer payment?

Q17 · What is definitely a feature of a nationalised industry?

Q18 · Which government action would be identified as the direct provision of goods and services?

Q19 · In its 2016 budget statement, the South African government proposed stimulating business…

Q20 · What would be certain to cause a fall in a country’s cost of living?

Q21 · The table gives figures for household spending in the UK economy between 2008 and 2010

Q22 · The table shows trade in goods and services for a selection of countries in 2005 and 2014

Q23 · A newspaper headline stated that the Australian car industry has been affected by the…

Q24 · The terms of trade for a country have improved

Q25 · The graphs show the production possibilities for commodities X and Y in two countries M…

Q26 · In the diagram, D is a country’s demand curve for an imported good

Q27 · The demand for a country’s exports is price-elastic

Q28 · A government decides to borrow from the general public in order to finance its extra…

Q29 · Which policy is not likely to help reduce a balance of payments deficit?

Q30 · A country has a target rate of inflation of 2.5% and has recently experienced the actual…

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